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entitled 'Free Trade Area of the Americas: Missed Deadline Prompts
Efforts to Restart Stalled Hemispheric Trade Negotiations' which was
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Report to the Chairman, Committee on Finance, U.S. Senate, and to the
Chairman, Committee on Ways and Means, House of Representatives:
March 2005:
Free Trade Area of the Americas:
Missed Deadline Prompts Efforts to Restart Stalled Hemispheric Trade
Negotiations:
GAO-05-166:
GAO Highlights:
Highlights of GAO-05-166, a report to Chairman, Senate Committee on
Finance and House Committee on Ways and Means:
Why GAO Did This Study:
If completed, the Free Trade Area of the Americas (FTAA) agreement
would encompass an area of 800 million people and about $13 trillion in
production of goods and services, making it the most significant
regional trade initiative presently being pursued by the United States.
The 34 democratic nations of the Western Hemisphere formally launched
negotiations towards a FTAA in 1998, and set a January 2005 deadline
for concluding a FTAA agreement. GAO was asked to analyze (1) progress
made in FTAA negotiations since GAO’s last (April 2003) report (2)
factors that have been influencing the FTAA’s progress; and (3) future
prospects for the FTAA.
USTR disagreed with our report, stating it was a poorly framed
portrayal of progress and problems in the negotiations, overemphasized
the role of the United States and Brazil in the current impasse, and
did not give sufficient weight to U.S. efforts to make progress. GAO
made several changes in response, but disagreed with USTR’s assessment.
The Departments of State, Commerce, and Agriculture provided technical
comments, which we incorporated.
What GAO Found:
Since our April 2003 report, FTAA negotiations reached an impasse that
remains unbroken. Prior to the November 2003 FTAA Ministerial in Miami,
negotiators made technical advances, but differences over the scope and
depth of obligations in the FTAA slowed substantive progress. Despite
adopting a new structure at Miami, negotiations have been suspended
since early 2004, and the scheduled conclusion of the FTAA in January
2005 expired without agreement. This spurred recent efforts to re-start
the talks.
Three factors have been impeding progress in the FTAA negotiations: (1)
the United States and Brazil have made little progress in resolving
basic differences on key negotiation issues, (2) member governments
have shifted energy and engagement from the FTAA to bilateral and
multilateral trade agreements, and (3) two mechanisms intended to
facilitate progress—a new negotiating structure and the co-chairmanship
by the U.S. and Brazil—have so far failed to do so.
Although in the Fall of 2004 participants and experts were pessimistic
about near-term prospects, many believe that integrating the hemisphere
is still worth pursuing and hope that FTAA talks can be revived in
2005. Some believe that progress on agriculture at the World Trade
Organization and the upcoming 2005 Summit of the Americas could spur
movement on the FTAA. However, many still see finally concluding the
FTAA as linked to further WTO progress and to renewal of U.S. Trade
Promotion Authority, which facilitates U.S. Congressional approval in
mid-2005. Nevertheless, officials from many of the nations and regional
groups we contacted indicate continued commitment to establishing a
mutually beneficial FTAA.
Progress in FTAA talks, November 2002 – January 2005:
[See PDF for image]
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-05-166.
To view the full product, including the scope and methodology, click on
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[End of section]
Contents:
Letter:
Results in Brief:
Background:
Negotiations Remain at an Impasse, Despite Adoption of a New FTAA
Structure:
Three Factors Have Inhibited Progress in FTAA Talks:
Though Pessimistic on Near-term Prospects, Many Believe Hemispheric
Integration Worth Pursuing and Hope for Resumption of Talks in 2005:
Concluding Remarks:
Agency Comments:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Comments from the U.S. Trade Representative:
GAO's Comments:
Appendix III: Agency Comments from the U.S. Department of Commerce:
GAO Comment:
Appendix IV: GAO Contacts and Staff Acknowledgment:
GAO Contacts:
Acknowledgments:
Related GAO Products:
Tables:
Table 1: Description of the New Framework Agreed to at Miami
Ministerial:
Figures:
Figure 1: Organization and Objectives of the FTAA Negotiations:
Figure 2: FTAA Milestones, 2002-2003:
Figure 3: Depiction of Key Issues to Remain in the FTAA under
Mercosur's "Three-Track" Proposal:
Figure 4: FTAA Milestones and Other Events, 2004-2005:
Abbreviations:
CAFTA: U.S.-Central American Free Trade Agreement:
CARICOM: Caribbean Community:
EU: European Union:
FTA: Free Trade Agreement:
FTAA: Free Trade Area of the Americas:
GSP: Generalized System of Preferences:
IPR: Intellectual Property Rights:
Mercosur: Common Market of the South:
TNC: Trade Negotiations Committee:
TPA: Trade Promotion Authority:
TRIPS: Trade-Related Intellectual Property Rights:
USTR: Office of the U.S. Trade Representative:
WTO: World Trade Organization:
Letter March 18, 2005:
The Honorable Charles E. Grassley:
Chairman:
Committee on Finance:
United States Senate:
The Honorable William H. Thomas:
Chairman:
Committee on Ways and Means:
House of Representatives:
If completed, the Free Trade Area of the Americas (FTAA) agreement
would reduce trade barriers and foster economic integration in a region
of 800 million people and about $13 trillion in production of goods and
services. As such, it is the most significant regional trade initiative
presently being pursued by the United States. Negotiations towards an
FTAA among the 34 democratic nations of the Western Hemisphere were
officially embraced in 1994 and formally launched in 1998. Heads of
State and government of the 34 nations set a January 2005 deadline for
concluding FTAA negotiations, and a substantial number of meetings at
both the political and technical level were held in an effort to
develop terms of a comprehensive agreement covering nine areas--market
access; agriculture; services; investment; government procurement;
intellectual property; competition policy; subsidies, antidumping, and
countervailing duties (trade remedies); and dispute settlement.
Subsequently, a major round of global trade negotiations was launched
at the World Trade Organization (WTO) in 2001 involving some of the
same issues. Progress on the FTAA has slowed since mid-2003, and came
to a standstill in 2004, during a time when negotiations were expected
to intensify in order to conclude in January 2005, as scheduled.
Given U.S. and other leaders' expressed belief in the desirability of
continued hemispheric economic integration and the now-missed January
2005 deadline for conclusion, you asked us to provide a report updating
our previous work on the current status of the negotiations. In this
report, we analyze: (1) progress made in FTAA negotiations since our
last (April 2003) report,[Footnote 1] (2) factors that have been
influencing the FTAA's progress, and (3) future prospects for the FTAA.
To address these objectives, we met with and obtained documents from a
wide variety of sources, including U.S. and foreign government
officials participating in the FTAA talks, officials from the three
institutions supporting the FTAA negotiations (the Inter-American
Development Bank, the Organization of American States, and the United
Nations Economic Commission for Latin America and the Caribbean),
experts on U.S.-Latin America trade relations, and private sector
groups such as business associations. We also attended events
associated with the FTAA ministerial meeting in Miami. Our analysis is
based on past and ongoing work on the FTAA, and was conducted in
accordance with generally accepted government auditing standards. A
full description of our scope and methodology can be found in appendix
II.
Results in Brief:
Since our April 2003 report, FTAA negotiations reached an impasse,
despite the adoption of a new negotiating structure intended to enable
progress. Prior to the November 2003 FTAA ministerial in Miami,
negotiators made technical advances, but mounting differences between
U.S.-and Brazil-led coalitions over the scope and depth of obligations
in the FTAA slowed substantive progress. To resolve these differences,
ministers in Miami agreed to shift the FTAA negotiating framework from
pursuing a "one size fits all" agreement to a more flexible agreement
consisting of (1) a single set of trade rights and obligations for all
nine areas that would apply to all 34 member countries and (2)
additional rights and commitments for those countries that wish to
adopt them. However, the agreement reached in Miami has not resolved
the impasse and negotiations among the 34 nations have been suspended
since early 2004. As a result, key milestones for progress have been
missed, and the scheduled conclusion of the FTAA negotiations in
January 2005 passed without an agreement.
Three factors have been impeding progress in the FTAA negotiations,
according to participants and experts on trade negotiations. First, the
United States and Brazil have made little progress in resolving basic
differences on key negotiation issues. Notably, Brazil insists it must
be assured that its concerns over agricultural subsidies and trade
remedies will be addressed and that an FTAA will result in meaningful
new market access, especially for its highly competitive agricultural
goods. However, the United States is seeking more stringent enforcement
of intellectual property rights (IPR), greater opportunities for U.S.
services providers, and new rules on government procurement and
investment protection before it will commit to fully liberalize access
to its markets. FTAA talks were halted in the absence of satisfactory
responses to these and other demands. Second, participants turned to
bilateral and multilateral trade agreements where progress appeared
more immediate. Notably, until August 2004, FTAA countries had expended
considerable effort seeking to break the deadlock in negotiations at
the WTO on agriculture, a key concern of all FTAA nations. Third,
mechanisms intended to facilitate progress--such as the new
negotiating structure and co-chairmanship by U.S. and Brazil of FTAA
talks--have thus far failed to do so.
Although participants and experts were pessimistic about near-term
prospects, many believe that integrating the hemisphere--by lowering
barriers to goods, services, and investment and strengthening trade
rules--is still worth pursuing, and they remain hopeful about reviving
the FTAA in 2005. Responsible U.S. and Brazilian officials recently met
in an effort to break the impasse, but face skepticism over the FTAA's
likely commercial benefit and their commitment to a mutually beneficial
deal. Some perceive that progress on agriculture at the WTO in 2004
could provide a better basis for moving forward in the FTAA in 2005.
However, many still see finally concluding the FTAA as linked to
further WTO progress and to renewal of U.S. Trade Promotion Authority,
which facilitates congressional approval of trade agreements.
Nevertheless, officials from many of the nations and regional groups we
contacted indicated a continued commitment to establishing a mutually
beneficial FTAA. On the eve of issuing this report, new efforts began
toward rekindling the FTAA negotiations.
In agency comments, USTR disagreed with our report, stating that they
felt that our report was inaccurate and poorly framed and
mischaracterized progress. USTR also took issue with key findings about
factors contributing to the impasse in negotiations. We have carefully
considered their comments and made some changes to the report, in
particular, by adding certain details that were previously omitted.
However, we find most of their objections without merit and are
confident the findings are presented accurately and fairly reflect the
extensive research we conducted on behalf of our congressional
requesters. The Departments of State, Commerce, and Agriculture
provided only technical comments on our report, which we incorporated
as appropriate.
Background:
Building on a decade of expanding trade and investment ties and
increasing economic integration in the region, the leaders of 34
democratic countries in the Western Hemisphere pledged in December 1994
to establish an FTAA no later than 2005. The agreement would
progressively eliminate barriers to trade and investment. The 34 FTAA
participants include a diverse set of countries, from some of the
wealthiest (the United States and Canada) to some of the poorest
(Haiti) and from some of the largest (Brazil) to some of the smallest
in the world (St. Kitts and Nevis).[Footnote 2] The large disparities
in size and economic development in the hemisphere mean that countries
come to the negotiating table with different defensive[Footnote 3] and
offensive[Footnote 4] interests that in some instances coincide and in
other cases diverge. In addition, smaller economies lack technical
capacity and seek assurances that the FTAA will include provisions to
assist them in managing the adjustment to more open markets. Many
nations are participating in the negotiations as subregional groupings
such as the Caribbean Community (CARICOM)[Footnote 5] and the Common
Market of the South (Mercosur)[Footnote 6] to facilitate their
participation in the FTAA talks. Given the size of its economy, Brazil
plays a leading role in Mercosur.
Between December 1994 and through negotiations' formal launch in April
1998, FTAA negotiators agreed on several principles to guide them,
notably that all decisions would be reached by consensus and that the
eventual FTAA agreement would be implemented as a single undertaking. A
single undertaking implies that the FTAA is a package deal to be
accepted in its entirety by each of the 34 prospective signatory
countries in order to benefit from the agreement's provisions.
Additionally, the negotiators agreed to the overall structure, scope,
and organization of the negotiations, including the establishment of a
Vice-ministerial-level Trade Negotiations Committee (TNC) to oversee
negotiations in between ministerial meetings and of nine negotiating
groups on particular issues, along with mandated objectives for these
groups. (See fig. 1.) They also agreed that a completed FTAA agreement
would include trade rules, which each of the nine negotiating groups
are to establish, market access schedules in five of these nine areas,
and a general text to cover overarching and institutional issues.
In April 2001, the first draft FTAA agreement was made public and more
precise deadlines were set for the conclusion and entry into force of
the FTAA agreement (January and December 2005, respectively). The 435-
page text contained a compilation and consolidation of proposals tabled
by FTAA participants. Producing the text marked important progress, but
also highlighted the considerable work remaining before the FTAA could
be finalized. Notably, much of the text remained in brackets, denoting
lack of agreement among participants. Subsequent revisions narrowed but
did not eliminate these substantive disagreements. Our prior GAO
reports have noted that resolving these disagreements would require
considerable hard bargaining.
Figure 1: Organization and Objectives of the FTAA Negotiations:
[See PDF for image]
Note: The general objectives of each negotiating group and the Trade
Negotiations Committee appear in italics and are GAO's summary of the
objectives for these entities established by the 1998 San Jose
Ministerial Declaration. Decisions taken at the November 2003 Miami
ministerial may result in changes for various groups.
[A] The Tripartite Committee, which provides technical support to the
negotiations, is comprised of the Organization of American States, the
Inter-American Development Bank, and the United Nations Economic
Commission for Latin America and the Caribbean.
[B] The Administrative Secretariat supports the FTAA ministers, the
Trade Negotiations Committee, negotiating groups, and other FTAA
entities.
[C] SPS stands for sanitary and phytosanitary measures. These measures
are taken to protect human, animal, or plant life or health.
[End of figure]
In November 2001, in Doha, Qatar, members of the WTO agreed to launch a
new round of multilateral trade negotiations called the Doha
Development Agenda (commonly referred to as the Doha Round), which was
also to conclude by January 1, 2005. The WTO negotiating agenda
includes negotiations on issues of great importance to FTAA countries,
including some of the same issues as the FTAA such as agriculture and
trade remedies such as antidumping. As we noted in our April 2003
report, the inclusion of agriculture in the Doha Round was especially
important for the FTAA negotiations because resolution of issues such
as domestic support (subsidies)[Footnote 7] and export
subsidies[Footnote 8] for agricultural goods has been linked to the
ongoing WTO Doha Round. Specifically, the United States has
consistently argued that the WTO, rather than the FTAA, is the
appropriate forum to negotiate domestic support because two primary
users of domestic support in agriculture, the European Union (EU) and
Japan, are not FTAA participants. Thus, the United States says,
domestic support reform must take place in the WTO, where the EU and
Japan are present, to avoid putting it and other FTAA countries that
subsidize farmers at a disadvantage in world markets. The United States
has taken a similar stance on trade remedies.
Several events that are significant to the FTAA occurred in 2002. In
August 2002, Congress passed the Bipartisan Trade Promotion Authority
Act of 2002 (TPA).[Footnote 9] The United States Trade Representative
(USTR) characterized the passage of the TPA as instrumental to
completing the FTAA negotiations on the same aggressive time frame as
the WTO talks (both negotiations were to be completed by January 2005).
TPA sets a number of U.S. trade negotiating objectives relevant to the
FTAA, and outlines procedural requirements for the executive branch to
fulfill as conditions for expedited congressional consideration of
legislation to implement trade agreements. In November 2002, FTAA
ministers launched a Hemispheric Cooperation Program (HCP), a special
trade capacity building program intended to provide technical
assistance to smaller economies for negotiating, implementing, and
benefiting from the FTAA. The HCP gives interested countries and donors
a mechanism to work together and with other partners to integrate trade
into development strategies. Past GAO reports have highlighted the
importance of strengthening smaller nations' trade capacity to FTAA's
ultimate success. Also in November 2002, Brazil and the United States
assumed the co-chairmanship of the FTAA process and are expected to
remain in that role until the FTAA negotiations conclude.
Negotiations Remain at an Impasse, Despite Adoption of a New FTAA
Structure:
From the November 2002 Quito ministerial to the November 2003 Miami
ministerial, negotiators made progress on the technical aspects of the
FTAA, including the exchange of market access offers and some requests
for improvement of these offers. However, growing differences between
the United States, Brazil, and many other countries over the scope and
depth of obligations in the FTAA slowed down progress. Leading up to
the Miami ministerial, FTAA ministers recognized the need for
flexibility and for political guidance to avoid a breakdown in the
negotiations. At Miami, countries agreed on a new negotiating
structure, but subsequent talks failed to define the new structure.
Formal FTAA talks have yet to resume since an inconclusive February
2004 meeting. As a result, the scheduled conclusion of the FTAA in
January 2005 passed without an agreement.
Before Miami, Negotiators Made Technical Progress, but Mounting U.S.-
Brazil Differences Over Scope and Depth of Obligations Prevented
Further Progress:
From the November 2002 Quito ministerial to the November 2003 Miami
ministerial, FTAA negotiators made technical progress. For example, the
TNC held the three meetings called for in the Quito ministerial
declaration. Participating governments also made progress on civil
society issues by holding two open public meetings in 2003 on
particular issues under discussion. Moreover, each negotiating group
submitted revised versions of the FTAA text chapters by the September
2003 deadline. The chapters were substantially reorganized from those
presented to ministers at the Quito Ministerial in 2002. The chapters
also included proposals the United States tabled during the first half
of 2003 that reflected the negotiating objectives set forth in Trade
Promotion Authority. On investment, the U.S. proposals were designed to
improve the efficiency and transparency of investor-state arbitration
and provide guidance to the tribunals that arbitrate such claims. The
United States also tabled text on environmental and labor obligations
reflecting TPA guidance in the FTAA Technical Committee on
Institutional Issues. In addition, all 34 countries exchanged tariff
offers, and many countries exchanged services, investment, and
government procurement offers by the agreed deadline of February 15,
2003. Fourteen countries prepared and submitted national or subregional
trade capacity building strategies as part of the Hemispheric
Cooperation Program. These and other key milestones for the FTAA during
2003 are depicted in figure 2.
Figure 2: FTAA Milestones, 2002-2003:
[See PDF for image]
[End of figure]
However, during this time--November 2002 to November 2003--mounting
differences between the United States and Brazil and their respective
allies over the scope and depth of obligations in the proposed
agreement slowed substantive progress in the FTAA. In our last
report,[Footnote 10] we noted that Brazilian officials had admitted
that Brazil was holding back in FTAA negotiations because they believed
the United States was not ready to negotiate on issues of greatest
interest to Brazil, such as high tariffs on key Brazilian exports and
trade remedies. With the November 2002 election as President of Brazil
of Luiz Inacio Lula da Silva, Brazilian participation in the FTAA
process further slowed down. Within the FTAA talks, Brazil and
Argentina were among the few countries that failed to submit initial
market access offers by the established February 2003 deadline for
three topics on which they were hesitant to assume obligations--
services, investment, and government procurement. Moreover, although
the 1998 San Jose ministerial declaration explicitly named the nine
issue areas to be negotiated in the FTAA, questions over the substance
of the final agreement continued to surface. For example, the United
States came under continued pressure to change its long-standing
insistence that negotiations on certain agricultural subsidies and
trade remedies be conducted within the WTO, not the FTAA. Among other
things, passage of the 2002 Farm Bill[Footnote 11] and the WTO's
failure to meet scheduled milestones heightened concerns by some FTAA
nations about prospects for addressing these two key issues.
The February 2003 exchange of initial market access offers also
highlighted U.S.-Brazil differences in approach to the FTAA. The United
States made four different goods market access offers that were
calculated to give smaller, less developed economies faster duty-free
access to the United States. The United States said that its
differentiated offer allowed it to accord smaller economies better
treatment, a principle agreed to by other FTAA nations, as well as
provided greater leverage to negotiate market-opening concessions in
large, lucrative markets. However, Brazil complained that the U.S.
market access offer provided Brazil and its Mercosur partners with the
least favorable market liberalization for consumer and industrial goods
and agricultural products, as well as placing its most competitive
products in the category with the longest phase-out period for tariff
elimination. However, U.S. officials believe the initial U.S. offer to
Brazil and its Mercosur partners was forthcoming because it provided
for immediate duty-free treatment to 58 percent of Mercosur's
industrial goods and 50 percent of its agricultural goods.
In response to a slowing of progress within FTAA negotiating groups,
Ambassador Zoellick visited Brazil's Foreign Minister Amorim in May
2003 and convened an informal ministerial meeting at Wye, Maryland, in
June 2003, to discuss possible ways to move the talks forward.
Nevertheless, in July 2003, Mercosur, led by Brazil, formalized its
vision of a scaled-back and "rebalanced" FTAA by formally tabling its
"Three Track" proposal in FTAA talks. According to press and other
accounts, the proposal called for (1) bilateral FTAA negotiations to
focus primarily on market access for goods and services; (2) regional
FTAA negotiations on rules for several issues not covered by the WTO,
including competition policy and dispute settlement, and (3) leaving
six of the original nine issues out of the FTAA altogether and moving
them to the WTO Doha Round negotiations (i.e., Brazil's defensive
interests of services, investment, government procurement, and IPR,
along with the United States' defensive interests of agricultural
subsidies and trade remedies). Figure 3 shows the key issues Mercosur
proposed moving to the WTO versus those it wanted to keep in the FTAA.
Figure 3: Depiction of Key Issues to Remain in the FTAA under
Mercosur's "Three-Track" Proposal:
[See PDF for image]
Note: This figure does not show all elements of Mercosur's proposal.
[End of figure]
In public remarks the United States rejected the proposal, which some
have labeled "FTAA-lite." The lead U.S. negotiator explained that a
broader agenda, including services, investment, government procurement,
and intellectual property, is extremely important to fostering real
integration in the hemisphere. He stressed that a market access-only
agreement would be insufficient to promote economic growth and
development, and expressed reservations about providing a high level of
access to the U.S. market in the absence of broader commitments on
rules and disciplines of interest to the U.S. and others in the region.
As we noted in our September 2001 report, the United States is the
world's leading exporter of services ($253 billion in 1999), holds
significant investments in FTAA countries ($661 billion in portfolio
and direct U.S. investment in 1999), is interested in government
procurement opportunities in the Western Hemisphere valued at
approximately $250 billion, and enjoys a decisive competitive advantage
in terms of high-tech, knowledge-based industries that depend on strong
IPR protection. In addition, unlike agriculture and antidumping, the
mandate for the WTO Doha Round does not include negotiations on
investment or government procurement, nor a major update of IPR
protections. As a result, those issues--which are of significant
commercial interest to the United States--might not have been addressed
in either the FTAA or WTO.[Footnote 12]
The failure of the September 2003 WTO ministerial at Cancun further
complicated FTAA talks. As we detail in a separate report, trade
ministers at the WTO Cancun ministerial in September 2003 failed to
adopt decisions on any of the key issues before them, including a
framework for subsequent work on agriculture.[Footnote 13] Because both
the FTAA and the WTO agreements are to be concluded as single
undertakings, and their deadlines for conclusion were the same, failure
of the WTO to progress at Cancun imperiled timely completion of both
the WTO Doha Round and FTAA talks. Moreover, the Cancun failure spawned
recriminations among FTAA participants. For example, Latin American
nations such as Brazil, Argentina, Chile, Ecuador, and Mexico were
prominent in the Group of 20 developing nations that pressed vigorously
at the WTO for cuts in developed country agriculture subsidies. The
United States complained at the time that the group was engaged in
confrontational tactics that were more directed at making a point than
making a deal. After Cancun, USTR Zoellick traveled to the Caribbean to
discuss the FTAA and other matters.
At the first FTAA meeting after the Cancun failure, an October 2003 TNC
meeting, a group of 13 FTAA countries[Footnote 14]--supported by the
United States--called for the original, comprehensive vision of the
FTAA to be retained. These countries, along with the United States,
further urged that the FTAA's market liberalization commitments be
highly ambitious in a number of areas, including intellectual property,
investment, services, and government procurement. Although nearly all
other FTAA countries expressed willingness to continue negotiating in
all nine issue areas and continued commitment to meet the January 2005
deadline for concluding the FTAA, Brazil indicated a limited
willingness to undertake new rules in these areas, citing a need to
maintain its negotiating leverage in the WTO Doha Round and to preserve
flexibility in these issues. Certain other countries also had
reservations. Participants in FTAA negotiations thus effectively broke
into two "camps," articulating their competing visions of an FTAA
agreement under the separate banners of U.S. and Brazilian leadership.
Hoping to Avoid a Breakdown at Miami, FTAA Ministers Recognized Need
for Flexibility and Political Guidance:
In view of the sharp differences in vision for the FTAA, trade
ministers recognized the need to provide political guidance for
negotiators. FTAA countries wanted to avoid an outcome similar to the
failed September 2003 WTO ministerial in Cancun, Mexico. Participants
recognized that keeping all 34 FTAA countries engaged in the
negotiations was critical and that flexibility would be required to do
so. In particular, a number of participants feared that failure to
accommodate Brazil's demands would prompt it to abandon the
negotiations, dashing their hopes of improved trade terms with South
America's largest market. As host of the Miami ministerial, the United
States was particularly invested in a successful outcome. USTR and
certain other U.S. officials had been working hard all year to bring
about a successful ministerial by working closely with officials from
the state of Florida and with representatives of Broward County and the
city of Miami, which organized the event. In early November, USTR
Zoellick hosted an early mini-ministerial meeting among key FTAA
nations in Lansdowne, in preparation for the Miami ministerial later
that month.
Miami Ministerial Changed FTAA's Structure, but Includes All Nine
Original Areas:
At the Miami ministerial, after obtaining informal input from some
members the early November mini-ministerial meeting organized by the
United States, co-chairs the United States and Brazil proposed a new
framework for the FTAA agreement as a means to move forward. Ministers
in Miami discussed and approved the proposed new structure, which gives
each country the flexibility to decide, according to its needs,
sensitivities, objectives, and capabilities, whether to assume
commitments beyond the common set which will be applicable to all 34
countries.[Footnote 15] Specifically, ministers instructed the TNC to:
(1) develop a "Common and Balanced Set of Rights and Obligations"
applicable to all 34 countries that would include provisions in the
nine areas under negotiation since 1998 and (2) establish procedures
for negotiations, possibly on a plurilateral[Footnote 16] basis, for
countries interested in negotiating additional disciplines and
benefits. FTAA participants, trade experts, and other analysts have
commonly referred to these two components using a variety of terms
(e.g., tiers, tracks, etc.) For the purposes of this report, we will
use lower tier when discussing the baseline or "Common Set of Rights
and Obligations" that will apply to all countries, and upper tier when
referring to the plurilateral component of additional obligations that
will be entered into by individual countries on a voluntary basis.
The Miami instructions represented a substantive shift from the
previous vision of the FTAA as a single undertaking, applying equally
to all 34 nations, to that of a two-tiered or two-track agreement with
varying degrees of national commitments to cut trade barriers and abide
by trade rules. The two tiers combined would constitute the FTAA. Table
1 provides a brief description of the two-tiered structure.
Table 1: Description of the New Framework Agreed to at Miami
Ministerial:
Tier: Upper;
Scope: Undefined;
Extent of rights and obligations: Undefined, but expected to be greater
than the lower tier;
Participation: Voluntary for any FTAA country.
Tier: Lower;
Scope: All 9 issues;
Extent of rights and obligations: Undefined;
Participation: Mandatory for all FTAA countries.
Source: GAO.
[End of table]
For the common set, or lower tier, ministers agreed that all nine areas
previously under negotiation would be covered. They also agreed to the
principle that the same rules would apply to all 34 participants.
However, the specific obligations under each issue were not determined
and were left to the TNC to negotiate in the future. For the upper
tier, country participation, issue coverage, and specific obligations
were to be worked out by the participating countries. However, the TNC
was to develop procedures governing these negotiations as a component
of the overall FTAA.
Thus, the Miami ministerial declaration left unanswered questions of
how ambitious the FTAA as a whole would be and what members could
expect to gain in key issues and markets of interest. However,
ministers stated that they expect that this new framework would "result
in an appropriate balance of rights and obligations where countries
reap the benefits of their respective commitments." U.S. officials
stress this means countries will "get what they pay for" in the
negotiations. Some experts have said that the Miami compromise was a
pragmatic political decision to avoid a collapse of the Miami
ministerial meeting and a breakdown in the FTAA talks, even if it
lacked details on how the new structure should be instituted by the
TNC.
Although ultimately accepted as a way to salvage the talks, the new two-
tier structure disappointed some member countries. At the ministerial,
several countries expressed disappointment that this new structure for
the FTAA would reduce their potential gains through the agreement and
urged that any two-tier arrangement be temporary in character. For
example, at the closing press conference for the Miami ministerial,
Mexico's Foreign Minister noted that Mexico had "had the expectation of
achieving greater progress, greater integration, and greater definition
of what we want in the hemisphere for free trade." Chile's trade
minister, while acknowledging the need to make headway in the face of
economic and political sensitivities, noted that when it committed to
pursuing an FTAA, Chile had been "looking for a comprehensive and
ambitious agreement that would cover all the disciplines." In general,
such countries felt the new structure cast doubt on whether the FTAA
agreement would ever attain the promise of trade liberalization and
hemispheric-wide integration that had been collectively envisioned for
nearly a decade. As a result, they urged intensive efforts to find
common ground in the months ahead.
After Miami Formal and Informal Negotiations Ceased, Key Dates and the
Scheduled Conclusion of FTAA Were Missed:
Ministers at Miami set goals for concluding market access negotiations
by September 2004 and the entire FTAA by January 2005 (see fig. 4).
However, FTAA countries made little progress to institute the new two-
tier structure in 2004 and thus did not meet these negotiation
deadlines. The February 2004 TNC meeting was recessed after failing to
complete the two tasks given them by ministers at Miami: (1) to define
the lower tier of rights and obligations that would apply to all 34
nations and (2) to develop procedures for plurilateral negotiations,
resulting in the indefinite suspension of formal talks among all FTAA
members. At the close of the February 2004 TNC, the U.S.-Brazil co-
chairs cited the complexity of the task and shortness of time as being
their primary consideration in recessing the meeting without agreement.
Hopes for reconvening the TNC later faded as ongoing efforts by the
U.S. and Brazilian co-chairs to bridge outstanding differences reached
a halt in mid-2004.
Sharply different visions for the FTAA's common rights and obligations
were articulated at the February meeting. Ahead of the February
meeting, the United States worked with four other countries (Canada,
Chile, Costa Rica, and Mexico) to develop a common strategy. The United
States was unsuccessful in reaching agreement with Brazil on the format
and participants for a more inclusive preparatory meeting, and thus it
was never held. At the February TNC meeting, the United States joined
with a group of 13 nations (including the 4 it worked with ahead of the
meeting) in making a proposal for the common set.[Footnote 17] Brazil
and its Mercosur partners also presented a proposal. The U.S.-
coalition's proposal went beyond Mercosur's in certain respects,
whereas the Mercosur proposal went beyond the U.S. coalition's proposal
in others.[Footnote 18] The two main camps that emerged at the February
TNC were roughly similar to the two main camps that emerged in the pre-
Miami debate over the FTAA's scope and depth.
After the meeting, both the United States and Brazil complained that
their partners were denying them benefits that they deemed were
essential to attaining an acceptable balance of rights and obligations
in the FTAA. Specifically, a U.S. trade official was quoted as saying
that the proposal it presented in concert with 13 other countries
reflected a scaling back of its objectives in areas of importance to
it, namely, services, IPR, investment, and procurement, in light of the
Miami framework. The fact that Mercosur's proposals did not reflect a
scale back in their own ambitions for market access for goods and in
agriculture was cited by the U.S. official as the primary reason
negotiators were not able to strike an acceptable balance at the
February meeting. In contrast, in public remarks, Brazil's then-
ambassador complained that Brazil is being unfairly labeled as a
spoiler in FTAA talks, claimed that even with the Miami compromise the
FTAA could still be comprehensive, and expressed concern about the
United States and its allies' stance on market access at the February
meeting. The Brazilian Ambassador stressed that Brazil needs to ensure
that its concerns in the areas of domestic support for agriculture and
trade remedies are adequately dealt with and that it will obtain
improved access to the U.S. market, particularly for agricultural
goods, in order to consider the FTAA a balanced agreement. In effect,
according to a senior U.S. official involved in the talks, both sides
accused the other of walking away from the Miami compromise.
Subsequent informal efforts to work out remaining differences continued
until June 2004. While these formal and informal efforts resulted in
some progress in defining the rights and obligations for the lower
tier, collectively, our analysis suggests that they further reduced the
scope of the FTAA's eventual substance in terms of market access and
rules on key topics. That is, to the extent common ground was reached,
it was often the result of movement in the direction of the proposal
with the least ambition on a given issue. No further meetings on the
FTAA took place in 2004, and a ministerial meeting slated for that year
was never scheduled by Brazil as host. As a result, the scheduled
deadline for concluding the FTAA negotiations in January 2005 was
missed without agreement.
Figure 4: FTAA Milestones and Other Events, 2004-2005:
[See PDF for image]
[End of figure]
Three Factors Have Inhibited Progress in FTAA Talks:
Our analysis suggests that three main factors have inhibited progress
on the FTAA. First and foremost, underlying differences between the
United States and Brazil and their respective allies on the depth of
rights and obligations on key issues continue. Second, negotiations in
other forums were given priority over the FTAA, in part because the
United States and Brazil deemed that progress there was more possible
and could eventually enhance prospects for a mutually advantageous
FTAA. Third, two mechanisms intended to facilitate compromise, the U.S.-
Brazil co-chairmanship and the two-tier structure, have thus far failed
to do so.
U.S.-Brazil Impasse Has Not Been Resolved:
The U.S. and Brazil's inability to accommodate each other's different
negotiating priorities continues to be the basis for the ongoing
impasse that halted FTAA negotiations for much of 2004. According to
U.S. officials, serious and significant rule-making obligations on such
topics as services, IPR, investment, and procurement, are essential if
the FTAA is to move the hemisphere towards meaningful regional
integration. Specifically, the United States seeks greater enforcement
of IPR, and new commitments that go beyond existing WTO requirements in
investment, government procurement, and other issues. The United States
is a world leader in these sectors, yet has few multilateral and
bilateral agreements with FTAA countries to protect its interests. For
example, only 2 of the 34 nations participating in FTAA talks (the
United States and Canada) are signatories to the WTO agreement that
sets out predictable rules enabling foreign suppliers to compete on an
equal footing with domestic suppliers for government contracts.
However, Brazil maintains that there is domestic resistance to such
reforms, and that agreeing to disciplines in these areas could be
costly and limit its ability to influence its economy. Brazil is a
major world producer of commodities such as coffee, oilseeds, sugar,
soy, and beef, and, along with Argentina, has been among the most vocal
of Mercosur members in insisting that the FTAA involve significant new
market access, especially for agricultural products. Domestic
sensitivities in many countries regarding these products were always
going to complicate the FTAA, and are no less challenging in the new
Miami framework involving generally lower ambition.
As highlighted below, in the most recent negotiations co-chaired by the
United States and Brazil, the 34 governments remained far apart, and
agreement has not yet been reached on the extent of rights and
obligations on numerous issues. The key sticking points remained market
access, agriculture, and IPR.
Market Access:
Brazil and its Mercosur partners have argued for up-front commitments
that all tariffs will be phased out in the FTAA. However, the United
States is not prepared to commit to an outcome to fully liberalize
tariffs on all products at this stage of the FTAA negotiations--before
tariff negotiations have really begun and before the overall level of
ambition of the common set is known. Nevertheless, Brazil says it wants
all products to be on the table-agricultural and nonagricultural-
and it does not want product exclusions. Previously agreed FTAA
guidance states that tariffs on all products will be subject to
negotiations. It also established 4 time periods for phasing out
tariffs. Both before and after Miami, Brazil unsuccessfully sought
language to the effect that the goal of market access negotiations is
elimination of tariffs on the entire tariff universe. Brazil's
Ambassador explained that, even since the Miami compromise, Brazil's
goal remains to ensure that the FTAA benefits all of its key export
products. However, he expressed concern that the United States and its
allies want key Brazilian export market products to be excluded from
FTAA tariff elimination. U.S. officials acknowledge that the United
States left some Mercosur products off the table at the point at which
FTAA negotiations stalled. However, they explain that all of the
products excluded from U.S. tariff elimination were agricultural
products and that the percentage of agricultural products excluded was
not high.
U.S. officials had told us that countries making fewer commitments
should expect fewer benefits from the FTAA. Most recently, in February
2005, a U.S. official underlined that the degree of market access the
United States will offer in the FTAA will depend on what commitments it
secures from other FTAA nations. Since the FTAA common set involves
fewer market access and rule-making commitments than the United States
has received from its bilateral and subregional FTA partners, the FTAA
will likely involve fewer U.S. market access benefits, the official
said.
Agriculture:
The United States and Brazil have also been unable to resolve several
agricultural issues, including the handling of agricultural domestic
supports. As previously noted, the United States has argued that
negotiations on domestic supports should be exclusively conducted in
the WTO Doha Round because it is not possible to reduce domestic
supports solely on a regional basis and without all major subsidizers
present. Brazil and its Mercosur partners have called for the
elimination of agricultural subsidies, including domestic supports.
Although in November 2004 Brazil's foreign minister recognized that the
only way to reach their goal of eliminating subsidies is through the
WTO, Brazil, and its Mercosur partners have still sought ways to
address agricultural supports in the FTAA. For example, according to a
tripartite organization official, Mercosur made a request at the
February 2004 TNC to create a hemispheric mechanism "to neutralize the
effect of all distorting measures and practices that affect trade of
agricultural products within the region." A U.S. trade official
confirmed that Mercosur is hoping to secure some concessions on
domestic supports--such as compensation in terms of better market
access--in the FTAA, but said that the United States has rejected any
attempt to negotiate this issue in the FTAA. In fact, several U.S.
officials expressed consternation that this issue had resurfaced after
the Miami ministerial.
Another outstanding issue is whether to provide for the possibility of
a special agricultural safeguard--a concept the United States and
numerous non-Mercosur nations have also endorsed. A USTR official said
that this mechanism would allow countries to address sudden drops in
prices for specified goods. A Brazilian official expressed concern that
this would "impair real market access" and might be used for
protectionist reasons. On export subsidies, the U.S. and Mercosur agree
that export subsidies should be eliminated in the hemisphere, but no
agreement has been reached on the definition of agricultural export
subsidies or how to handle subsidized imports from countries outside
the hemisphere.
IPR:
Brazil's unwillingness to commit to binding IPR enforcement obligations
is a major source of disagreement between the United States and Brazil.
In May 2004, the Brazilian co-chair publicly noted that Brazil does not
believe trade sanctions in retaliation for failure to enforce IPR are
consistent with the FTAA's goal of lowering barriers to trade. However,
he noted that other FTAA countries do not believe voluntary
consultations are sufficient for enforcement of IPR. As Foreign
Minister Amorim has expressed Brazil's position, the problem is not
with enforcement per se, but with the fact that technical assistance
and financing are needed to improve Brazil's ability to comply. In a
September 2004 speech, Deputy USTR Allgeier stated that the United
States wants to focus on implementation and enforcement of countries'
existing WTO TRIPs commitments, that the United States has serious,
unresolved concerns about Brazil's IPR enforcement, and that the FTAA
must ensure that IPR enforcement is being strengthened. In November
2004, USTR Robert Zoellick said that although the United States
recognizes it cannot attain in the FTAA the high standards of IPR
protection that have been achieved in bilateral FTAs, countries'
refusal to commit to enforce IPR obligations in the FTAA was
unacceptable to the United States. Reports from the latest (February
2005) meeting indicate IPR remains a key sticking point.
Other important differences exist on such issues as services,
investment, government procurement, and trade remedies. On services,
for example, the extent of and approach to FTAA liberalization and
rules are at issue. However, participants have made some progress in
narrowing their differences on these issues, notably government
procurement and investment.
Negotiations in Other Forums Given Priority over FTAA Negotiations:
In response to these and other substantive problems that slowed FTAA
talks, participants turned to negotiations in other forums, such as the
multilateral WTO talks and subregional and bilateral efforts, where
progress looked more immediate. Coupled with the absence during most of
2004 of formal negotiations on the FTAA, this further diminished the
momentum behind the regionwide effort. (See app. I.) In particular, the
United States and Brazil have focused their energies on the WTO Doha
Round and on regional negotiations, such as those among the United
States and several Andean nations and between Mercosur and the European
Union (EU). In part, this reflected their judgment that progress in
these forums was more possible and would ultimately enable greater
advances in the FTAA. Other trade experts, however, are not sure that
the FTAs and other agreements have worked to advance the FTAA.
In 2004, the United States continued to press an aggressive
"competitive liberalization strategy," which is to move its trade
agenda on three fronts: multilaterally at the WTO, regionally at the
FTAA, and bilaterally with a series of prospective FTA partners. The
USTR has noted in its 2004 annual report that since passage of TPA, the
United States has already negotiated FTAs with 12 countries including
several in the Western Hemisphere--Chile, the Central American
countries (CAFTA), and the Dominican Republic--and is in the process of
negotiating with 12 more. Senior U.S. officials have stated that the
U.S. pursuit of bilateral and multilateral FTAs would advance the FTAA
and further its goal of expanded trade in the hemisphere, even if in a
step-by-step fashion. For its part, Brazil's foreign minister has
indicated that the WTO talks are more important than the FTAA talks,
since the WTO is the "only way to reach [the] goal of eliminating
subsidies and other trade distortions." Brazilian officials also
focused on an EU-Mercosur FTA that some believe could strengthen its
hand in FTAA negotiations. The EU-Mercosur talks reportedly slowed in
the fall of 2004 over many of the same issues that arose in the FTAA,
but are expected to restart soon.
There are mixed views about whether these bilateral and regional FTAs
are having a positive impact on the FTAA. Some trade experts say that
FTAs help the FTAA by facilitating free trade among countries, setting
common rules, and providing a better understanding of the benefits of
free trade. Moreover, these FTAs are achieving the kind of market
access and updated trade rules the United States had hoped to secure in
the FTAA prior to Miami. In part for this reason, several U.S. business
community representatives we spoke with told us they have shifted their
focus to other agreements. For example, a representative from the
International Intellectual Property Alliance credited recent U.S. FTAs
with Morocco, Singapore, and Australia, as setting new standards for
IPR protection that are higher than the WTO, and expressed doubt that a
34-nation FTAA will include such high standards. Similarly, a trade
group representative from the services community told us he believes
that U.S. industries are likely to receive more market access from
present and future FTA partners in the hemisphere than they would
through the new two-tier FTAA structure. Trade group representatives
from the U.S. agricultural community told us that they believe the
sector has gained most of the market access it seeks through bilateral
FTAs. Some of them now see the FTAA as more of a threat than an
opportunity. This loss of interest has led other trade experts to argue
that FTAs detract attention from the FTAA, create a confusing system of
trade arrangements, and raise the bar--possibly beyond others' reach--
for new trade rules on issues, including services, government
procurement, and IPR.
On the multilateral front, lack of progress in global trade talks at
the WTO also impeded progress in the FTAA negotiations in 2003 and the
first half of 2004. As a result, officials told us that during a part
of 2004 the United States and Brazilian focus shifted from the FTAA
toward reaching agreement on a WTO framework. In fact, the United
States and Brazil, among others, played leadership roles in intensive
negotiations at the WTO and successfully reached agreement on a
framework on August 1. The framework in agriculture--a guideline for
the next phase of negotiations--represents progress. Among other
things, it includes a commitment to eliminate all export subsidies on
agriculture by a date certain and specifies that countries with higher
levels of trade-distorting domestic supports will be subject to deeper
cuts in these supports. However, it falls short of the "modalities"
(numerical targets, timetables, formulas, and guidelines) required to
actually make tariff and subsidy cuts that members had been targeted to
attain by March 2003. In fact, given their success in adopting a
package and recent efforts to accelerate progress, WTO nations are now
hoping that they will have modalities in place by their December 2005
ministerial, but recognize this as an ambitious goal. WTO negotiations
are thus about 2 years behind their originally scheduled date for
conclusion.
Two-tier Structure and Co-chairmanship Have Not Facilitated Compromise:
A third factor hindering progress on the FTAA is that two mechanisms
intended to facilitate U.S.-Brazil compromise--the new two-tier
structure and the co-chairmanship--have thus far failed to do so.
Two-tier Structure:
At Miami, the United States and Brazil billed the two-tier structure as
a way to bridge their differences and enable both their visions of an
FTAA to co-exist. However, our analyses suggest that in practice, the
new negotiating framework added new complications to the negotiations
without resolving the U.S.-Brazil centered dispute over the FTAA's
ambition.
First, since Miami, FTAA negotiators have faced a conceptual problem
because they abandoned the original vision in favor of a scaled-back
FTAA, the substantive content of which was left largely undefined.
Since details on the level of trade liberalization that was envisaged
in the common set were not decided at Miami, FTAA participants have
interpreted the goals and the nature of the new FTAA architecture
differently.
Second, interdependence between the two tiers has also complicated net
benefit calculations. Member countries will have to trade-off offensive
and defensive interests in the two-tier framework. This is inherently
more complicated to do until the content and obligations of each tier
is defined.
Third, the United States and Brazil have divergent strategies for
instituting the two-tier structure. U.S. officials admit that the U.S.
long-term goal is an FTAA modeled on the more ambitious upper tier. The
United States' basic premise is that if a country is not willing to
undertake higher obligations and new rules for issues of importance to
it--services, investment, government procurement, and IPR--then it
should not expect as much market access for its goods and services.
Brazilian officials, on the other hand, explain that Brazil is trying
to achieve balance within the lower tier, including market access for
goods and services, and some limited new rules for investment and
government procurement. However, Brazil is otherwise generally not
willing to accept an FTAA with rules that go beyond those in the WTO.
In discussions with us, U.S. and Brazilian officials expressed
continued belief that the two-tier structure represents the best way
forward for FTAA negotiations. Certain officials from other countries
and experts, however, are skeptical. Several officials said the two-
tier structure is a symptom of continued U.S.-Brazil failure to agree
on an FTAA that provides mutual benefits. They suggest that the two-
tier structure needs to be rethought, given the difficulties
experienced in instituting it and the potential it creates for moving
aspects of issues essential for balance off the negotiating table. Now
fearing the prospect that participating exclusively in the lower tier
could result in permanent "second class" membership, an FTAA country
official who supported the idea suggested to us that a single agreement
applicable to all member nations with negotiated exemptions for
sensitive products or capacity constraints might be preferable.
Co-chairmanship:
In our view, the arrangement with the United States and Brazil as co-
chairs of the negotiations has complicated the process of moving the
FTAA negotiations forward. When negotiations were formally launched in
1998, selecting two of the largest economies in the hemisphere with
vastly different interests to share the responsibility of leading the
talks seemed logical to some experts, as success in the talks depended
upon those two countries working together toward a common goal. Most
experts and participants still believe such cooperation is a necessary,
if not sufficient, condition for concluding an FTAA. U.S. and Brazilian
officials believe that the co-chairmanship reflects the importance of
the United States and Brazil in bringing the negotiations to a
successful conclusion and keeping countries engaged at senior levels
toward that end. However, some participants have questioned whether as
co-chairs the United States and Brazil have in practice been able to
successfully keep separate their roles of (1) negotiating in their
countries' interest, while (2) impartially leading and finding
solutions to move the negotiations forward. As a result, one of the
lead FTAA negotiators commented that it may have been preferable to
have a neutral chair.
Moreover, as co-chairs, the United States and Brazil have the power to
set the pace of negotiations by setting schedules and convening
meetings. As noted earlier, the co-chairs were unable to agree to hold
a preparatory meeting with a cross-section of members ahead of the
inconclusive February 2004 TNC. The co-chairs have not reconvened the
34 nation TNC since the February 2004 TNC, and no negotiating group
meetings were held in 2004. While for most of 2004 the other member
countries gave the United States and Brazil time and space to work out
their differences, the co-chair talks came to a halt in June 2004. One
lead negotiator suggested to us that since that time neither Brazil nor
the United States is effectively leading the negotiations. Yet
beginning in August 2004, after the WTO framework was agreed to,
certain participating countries began coming forward, urging the co-
chairs to update them on progress, including prospects for a relaunch
and a schedule for re-engaging the entire membership. Until late
February 2005, the co-chairs had yet to do so. In comments to us, an
official from another country that has pressed for a comprehensive and
ambitious FTAA urged the United States and Brazil, as co-chairs, to
disavow self-serving stances and to adopt a more flexible approach,
rather than using the FTAA to settle bilateral disputes and blocking,
rather than advancing, hemispheric negotiations. On the other hand,
Brazilian officials were not alone in commenting favorably on the U.S.
co-chairs' personal commitment to the FTAA's success.
Though Pessimistic on Near-term Prospects, Many Believe Hemispheric
Integration Worth Pursuing and Hope for Resumption of Talks in 2005:
Although many participants and experts were pessimistic when we spoke
with them in the fall of 2004, they generally believe that integrating
the hemisphere is still worth pursuing and remain hopeful about
prospects for reviving the FTAA in 2005.
Will to Break Impasse Required:
Many FTAA experts and country officials we spoke with were pessimistic
about the FTAA's near-term prospects because the FTAA cannot advance
until the U.S.-Brazil impasse is broken. Through mid-November 2004,
neither the United States nor Brazil had decided to take the first move
to break their 6-month stand-off. However, in late November, USTR
Zoellick wrote to Brazil's Foreign Minister Amorim proposing a fresh
effort on the FTAA and called for the two sides to meet soon towards
that end. Brazil responded positively. On the eve of issuing this
report, new efforts began toward rekindling the FTAA negotiations. On
January 30, 2005, Ambassador Zoellick and Brazilian Foreign Minister
Amorim met to discuss the possibility of renewing FTAA talks. Following
that meeting the co-chairs met in Washington, D.C., on February 23 and
24, 2005, and at the end of the meeting reported that some progress had
been made in bridging their differences concerning the scope of the
FTAA's common set of obligations. Another meeting has been scheduled
for late March to continue those discussions. If the co-chairs reach
agreement, they plan to convene a TNC meeting in late April or early
May of this year, with the goal of reaching consensus among the 34
participating countries on the instructions for the common set
negotiations and on procedures for the plurilateral negotiations. A
statement from the co-chairs said that they are hopeful that based on
that agreement they would be able to resume FTAA negotiations in June.
Nevertheless, it may be instructive to examine the reasons U.S. and
Brazilian officials gave to us for their prior reticence to re-engage,
based on our fall 2004 interviews--all three of them related to
political will.
First, several U.S. trade officials suggested the United States has
little room to maneuver, especially to ensure that the final FTAA
sufficiently meets the objectives of TPA. A U.S. official explained
that the United States has already made considerable concessions to
Brazil in agreeing to a two-tiered FTAA at Miami. The United States'
subsequent February 2004 proposals on the lower tier also reflected a
scale-back from its earlier demands. The U.S. officials we spoke with
are still hopeful that the FTAA will eventually deliver meaningful
commercial benefits. However, they acknowledged that any benefits are
likely to fall short of what it had hoped to secure prior to Miami--or
what the U.S. business community has come to expect as a result of
recent bilateral agreements. This diminished business support has
weakened the pressure on U.S. negotiators to seek an accommodation with
Brazil.
Second, in discussions with us, U.S. and Brazilian officials both
expressed a sense that they have made considerable effort to find
common ground and showed some skepticism about their partner's
commitment. For their part, U.S. officials point to a series of
meetings initiated by the USTR, both before and after Miami, as
emblematic of U.S. commitment to advance the talks, but say Brazil has
seemed to want to hold the FTAA back. According to a U.S. official, the
United States had been interested in a substantive FTAA and the
administration remains committed to the FTAA because it will be good
for the United States and for the region. However, discussions since
Miami have helped bring differences in U.S.-Brazil conceptions out in
the open, and suggest that Brazil has not reconciled itself to an FTAA
that looks anything like what the United States would like to see. U.S.
officials also believe they have shown willingness to compromise and
express disappointment that Brazil and its Mercosur partners have been
unwilling to reciprocate. For example, the USTR told reporters in mid-
November 2004 that Mercosur needs to show additional flexibility and be
more willing to "give" on issues of importance to the United States in
order to "get" what it wants out of the FTAA. On the other hand,
Brazilian officials expressed concern to us that its positions are
being mischaracterized or misunderstood. For example, Brazil counters
that the kind of opening of industrial and services markets it is
prepared to offer would present considerable new opportunities to the
United States and other FTAA nations. Brazil has also been willing to
go beyond its WTO obligations in some areas, notably investment and
government procurement, where the WTO presently has no comprehensive
multilateral agreements. Thus, Brazilian officials say, efforts by U.S.
officials to label it as "unambitious" are both unfair and
unproductive.
Third, based on our conversations with U.S. and Brazilian officials,
each country also appeared to feel it has a "strong hand" in the
negotiations and could afford to wait. Brazil believes better access to
its large and growing economy is valued by the United States and has
shown its influence on the world stage by playing a central role in WTO
negotiations and winning WTO disputes against the U.S. cotton and EU
sugar agricultural subsidy programs. U.S. officials argue the United
States has had considerable success with an aggressive "competitive
liberalization strategy," stating that, taking into account FTAs in
effect, completed, or that are in ongoing negotiations, U.S. bilateral
and subregional free trade efforts involve two-thirds of the
hemisphere's non-U.S. population and income. The United States also
retains certain leverage associated with its trade laws and preference
programs. For example, though not formally linked to its FTAA stance,
Brazil's General System of Preferences (GSP)[Footnote 19] benefits from
the United States have been recently placed in jeopardy for alleged
failure to adequately protect U.S. intellectual property rights.
WTO Framework Agreement and 2005 Summit of Americas May Provide Better
Basis for Restarting FTAA Talks:
Some country officials and experts believe that conditions may be more
ripe for restarting talks now that the long-standing deadlock in WTO
talks has been broken and the U.S. electoral cycle is complete. (Even
after the U.S. elections, Brazil had indicated it was waiting for a new
USTR to be named before seriously engaging in FTAA talks.) On the
substance, the WTO framework adopted in July 2004 resulted in somewhat
clearer commitments regarding further disciplining agricultural
subsidies and other issues. Breaking the WTO impasse also could improve
the FTAA negotiating atmosphere, given the U.S.-Brazil cooperation it
required. Thus, to the extent that it provides reassurance about the
direction and thrust of partners' policies, the WTO progress builds
confidence that could provide impetus for restarting FTAA talks.
However, several experts we spoke with felt that the WTO framework,
while welcome, is not concrete enough to forestall the ongoing
insistence by some parties that agriculture subsidy and trade remedy
reform accompany an FTAA. Indeed, in January 2005, Brazil's Foreign
Minister stressed that Brazil's capacity to agree to new rules in the
FTAA on IPR and investment depends on securing such reform. One Andean
country's lead negotiator echoed this sentiment, saying the FTAA will
remain secondary in priority to other negotiations until the outcome of
the WTO Doha Round is clear. Brazilian officials told us that the WTO
framework sends a "positive message" for the FTAA, but stressed that
what the WTO concretely produces on agriculture remains essential to
FTAA progress.
Several officials and experts said the lead-up to the November 2005
Summit of the Americas in Argentina could generate forward momentum for
the FTAA, although others were less sanguine. Yet, even the optimists
feel concluding an agreement will only be possible if FTAA ministers
halt the downward spiral in the FTAA's ambitions and renew their
efforts to negotiate a meaningful agreement. Certain nations and U.S.
business associations we met with stressed that they stand ready to
support a two-tier FTAA, as long as it promises sufficiently large
economic gains. Several officials also suggested that building forward
momentum will not be a minor undertaking, given the considerable length
of time FTAA negotiations have languished. As a result, certain FTAA
country officials, Tripartite Committee, and trade experts see taking
action by mid-2005 such as extending TPA as critical to finishing the
FTAA.[Footnote 20] Other experts suggest FTAA countries will closely
watch Congress' stance in 2005 on whether to approve the CAFTA as a
bellwether for support for broader hemispheric integration. Even so, a
number of experts felt the deadline for WTO and FTAA talks would remain
linked with final bargaining likely to be made in 2006-07, when a new
U.S. Farm Bill may be under consideration (the present U.S. Farm Bill
expires in late 2006).
Underlying Motivation Remains Strong among Many Participants:
Despite concern over the short-term prospects, many experts and
officials believe that the FTAA is an idea that is still worth pursuing
and are hopeful for re-engagement later in 2005.
First, experts argue that the ideals that originally motivated pursuit
of an FTAA remain valid. These include the desire to deepen economic
integration and improve living standards throughout the hemisphere; the
shared goal of fostering political cooperation and strengthening
democratic, market-oriented institutions; and the imperative to
increase the region's growth and competitiveness in an ever-more-
globalized economy. In this regard, China's emergence as a global
trader has lent further importance to attaining the FTAA, some
suggested.
Second, officials from many of the nations we contacted continue to
anticipate gains from concluding an FTAA. Senior U.S. officials have
repeatedly and publicly expressed continued commitment to an eventual
FTAA. In an October 2004 statement signaling an improved chance of
resuming talks after the U.S. election, Brazil's Foreign Minister
stated, "Integration will occur, for better or worse. It will come
about through contraband, drug traffic, and guerilla warfare. Or it
will be through trade, technology, and investment. Better for it to be
the second way." Nevertheless, various other public remarks by Brazil's
Foreign Minister suggest that the FTAA's priority is not paramount and
that Brazil's principal interest is in a negotiation with the United
States that will yield improved access to the U.S. market. An official
from another Mercosur member noted its interest in an FTAA is based on
a desire to increase and diversify its exports, a theme echoed by an
official from another regional grouping. An official from an existing
U.S. FTA partner highlighted its desire to further integrate
hemispheric markets and sees the FTAA as integral for promoting
hemispheric development. An official from another U.S. FTA partner
stressed its strong commitment to the FTAA because it would bring
political and economic gains over the medium-and long-term. Officials
in another nation pointed out that the FTAA is critical for improving
access to Latin American markets, particularly in the Mercosur region.
Many could not conceive of the FTAA being officially abandoned given
these stakes, and the considerable time, effort, and political capital
already invested. A Central American nation representative stressed
that it would be foolhardy to abandon the FTAA because it symbolizes
the region's commitment to economic and political progress. Another
country representative indicated that the FTAA is a forum in which
hemispheric officials at all levels share a vision of where the region
aspires to move--which he considers a worthwhile endeavor--even if
realizing that vision is "a complex challenge." A representative of a
CARICOM nation expressed hope that the question is not "whether we will
have an FTAA, but when."
However, a consistent premise for countries' commitment to the FTAA is
that the final agreement be mutually advantageous and flexibly respond
to differing capacities. A Mercosur member, for example, noted that
"time frames are important, but in the end, it is more important that
countries realize the economic growth, job creation, and narrowing of
income disparities that could be achieved by signing an agreement that
truly reflects, in the best possible way, the interests of the FTAA's
diverse membership."
Concluding Remarks:
After making steady technical progress, FTAA talks slowed in mid-2003
and were essentially at a standstill for over a year. Some U.S.,
Brazilian, and other FTAA officials think the pause in FTAA talks is an
inherent part of achieving an acceptable balance of rights and
obligations among the 34 nations participating. However, a number of
the participants and experts we spoke with now believe that greater
political commitment and decisive involvement is necessary to break the
impasse and restore vitality to the flagging negotiations. The missed
January 2005 deadline for concluding the FTAA coincided with renewed
U.S.-Brazil efforts to find common ground. After their February 23-24,
2005 meeting, the U.S.-Brazil co-chairs issued a joint statement
expressing optimism about the progress they had made. A U.S.
spokesperson expressed hope that a late March meeting would prove
successful in closing gaps on remaining issues and enable the co-chairs
to restart FTAA talks by reconvening all 34 FTAA nations in early May.
Whether there is decisive action, 2005 will determine if the decade-
long effort on the FTAA and long-sought vision of hemispheric economic
integration will finally come to fruition.
Agency Comments:
We provided draft copies of this report to the Office of the U.S. Trade
Representative, the Departments of State, Commerce, and Agriculture on
January 4, 2005, and received formal comments from USTR and the
Department of Commerce.
USTR disagreed with our report, stating that it is an inaccurate and
poorly framed portrayal of progress and problems in the negotiations,
overemphasized the role of the United States and Brazil in the current
impasse, and did not give sufficient weight to U.S. efforts to make
progress in the talks. We disagree with USTR's assessment. As detailed
in our scope and methodology, we conducted more than 58 interviews,
most of them with officials directly engaged in the FTAA negotiations,
including with representatives from 17 of the 34 countries and each of
the major regional groupings participating in the FTAA talks,
tripartite officials and other experts, U.S. officials including USTR
officials, and private sector representatives over the period leading
up to and after the Miami FTAA ministerial. We also reviewed numerous
U.S. and foreign government official documents and private sector
submissions related to the negotiations. Moreover, we relied on the
expertise developed over the course of our three prior reports and two
testimonies on the FTAA issued in the past 4 years.
The Chairmen of the Senate Finance Committee and the House Ways and
Means Committee asked us to provide an independent perspective on the
issues and challenges facing FTAA negotiators and the United States, in
its capacity of co-chairman of the negotiations. Our objectives were to
assess the progress that was made since our April 2003 report, the
factors that have affected progress, and future prospects for the FTAA.
We stand by our report's conclusion that FTAA negotiations have not
progressed since mid-2003, in large part due to unresolved U.S.-Brazil
disagreements, higher priorities, and negotiating structures that have,
to date, tended to compound difficulties, rather than facilitate
progress. As the USTR letter points out, the FTAA has been a
centerpiece for U.S. policy towards Latin America for more than a
decade, and as of yet, no way has been found to move the negotiations
toward a successful conclusion. We provide additional detail in
appendix II on our response to USTR's comments, including those areas
where we have made modifications to our report.
As agreed with your offices, unless you publicly release its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this report. At that time we will provide copies to
interested congressional committees, the U.S. Trade Representative, the
Secretary of State, the Secretary of Commerce, and the Secretary of
Agriculture. We will also make copies available to others upon request.
In addition, the report will be available at no charge on the GAO Web
site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-4347. Additional GAO contacts and staff
acknowledgements are listed in appendix IV.
Signed by:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To conduct our analysis of the progress made in FTAA negotiations since
our last report (April 2003), the factors influencing the FTAA's
progress, and the FTAA's future prospects, we reviewed public foreign
government and official FTAA and executive branch documents. We also
reviewed academic and economic literature related to the negotiations
and participated in a number of discussions and panels on the FTAA
sponsored by institutions such as the Inter-American Dialogue and the
Woodrow Wilson Center. We conducted a total of 58 interviews both
before and after the November 2003 Miami ministerial, including 21
interviews with U.S. officials from the Office of the United States
Trade Representative and the Departments of State, Agriculture, and
Commerce. We also interviewed foreign government officials from five
FTAA participant countries[Footnote 21] and one group of countries
participating in the FTAA. In addition, we sent a letter soliciting
views from the Lead Negotiators of the 34 FTAA participant countries
and received 15 oral and/or written responses.[Footnote 22] In total,
we obtained information from 16 of the 34 nations participating in the
FTAA talks, and each of the major groupings[Footnote 23] within the
hemisphere. We also interviewed trade and U.S.-Latin American affairs
experts at the Council of the Americas, the Inter-American Dialogue,
the Center for Strategic and International Studies, the Institute for
International Economics, as well as and officials from the National
Association of Manufacturers, Coalition of Services Industries, United
States Chamber of Commerce, and Caterpillar. We also reviewed written
private sector input provided to USTR by numerous business associations
and private sector advisory committee members. We held several
discussions with each of the multilateral institutions that provide
technical assistance to the FTAA negotiations: the Organization of
American States, the Inter-American Development Bank, and the Economic
Commission for Latin America and the Caribbean. In November 2003, we
attended meetings associated with the FTAA trade ministerial, including
the Americas Business Forum and the Americas Trade and Sustainable
Development Forum. This report is also based on our past work on the
FTAA negotiations in the Western Hemisphere, such as pre-and post-Miami
briefings for requesters and previous public reports and testimonies
(see related GAO products).
We conducted our work from April through December 2004 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the U.S. Trade Representative:
EXECUTIVE OFFICE OF THE PRESIDENT:
DEPUTY UNITED STATES TRADE REPRESENTATIVE:
WASHINGTON, D.C. 20508:
February 10, 2005:
Mr. Loren Yager:
Director:
International Affairs and Trade Issues:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Yager:
Thank you for the opportunity to submit comments from the Office of the
United States Trade Representative (USTR) on the draft Government
Accountability Office (GAO) report Free Trade Area of the Americas:
Negotiations Stalled; Differences between Key Participants Persist as
Deadline Passes. GAO's report aims to provide an update on the Free
Trade Area of the Americas (FTAA) negotiations in the period since its
previous report was released in April 2003.
In our view, the GAO report is an inaccurate and poorly framed
portrayal of progress and problems in the negotiations over the past
twenty months. This is unfortunate given the GAO's important role in
helping inform the Congress and the general public on matters of public
policy. The report characterizes the negotiating dynamics as mainly
involving the United States and Brazil, blames their co-chairmanship
for the talks' slowdown, and asserts erroneously that we (and others)
deliberately shifted away from the FTAA and thus added to its problems.
It implicitly lays a major part of the blame for problems in the
negotiations on the United States, especially our positions on
agricultural subsidies, agricultural market access, and intellectual
property; it lacks a description of the context in which these issues
played out; and it omits or downplays key initiatives the United States
took in 2003 and 2004 to move the negotiations forward. It also omits
mention of developments that have positive long-term implications for
the FTAA and hemispheric integration, including an increasingly
substantive dialogue with civil society, the establishment of a
Hemispheric Cooperation Program to help smaller economies participate
in the benefits of trade liberalization, and our broader efforts in the
region to promote free trade that supports the FTAA.
Dilemma in 2003: The central conundrum that countries faced in mid-2003
was the call by Mercosur, in particular Brazil and Argentina, to change
the terms of reference agreed upon by all countries as the basis for
the negotiations since 1998. The effect of Mercosur's position,
eventually clarified in its "three-track" proposal of July 2003, would
have been to limit the FTAA to the liberalization of tariffs and
perhaps some services trade, along with cuts in U.S. agricultural
subsidies. For many countries, leaving out full services
liberalization, investment, government procurement, intellectual
property rights and other issues would reduce the FTAA's potential for
igniting growth, fostering job creation and prosperity and bringing
about real economic integration in the Americas.
For us and others, a tariffs-only agreement would ignore extremely
important areas of our economies. Mercosur's proposed framework would
have skewed the results in a way disadvantageous to U.S. interests.
As countries groped during 2003 to clarify Mercosur's position and
sought ways to keep the negotiations moving forward, Mercosur backed up
its challenge to the negotiating agenda by, among other things,
declining to participate in the comprehensive exchanges of initial
market access offers in all the areas to which all countries had
committed. In contrast, the United States put forward-on schedule-
initial offers to FTAA partners in all five agreed market access areas
-industrial goods, agricultural goods, services, investment, and
government procurement. The U.S. market access proposals in these areas
were comprehensive and bold, and they demonstrated a strong commitment
to the FTAA. They were differentiated among four groups of countries in
a way calculated to give less developed and smaller economies faster
duty free access to the U.S. market. This recognized the principle, to
which all parties had agreed, that the negotiations should take into
account differences in the levels of development and size of the
economies in order to create opportunities for their full participation
and development. We find it ironic that the draft GAO report mentions
this only in the context of complaints by Brazil and its Mercosur
partners used to justify their efforts to reorient the negotiations as
a whole.
U.S. Leadership: In 2003 and looking toward the November ministerial in
Miami, the United States and Brazil as co-chairs of the negotiations,
and especially the United States as ministerial host, had an obligation
to lead. We exercised that leadership, and the lack of discussion of
that work in the GAO report is difficult to understand. Ambassador
Zoellick's consultations in Brazil with Brazilian Foreign Minister
Celso Amorim in May 2003, his hosting of an exploratory mini-
ministerial at Wye, Maryland, in June, and his convening of another
mini-ministerial at Lansdowne, Virginia, in early-November on the eve
of the Miami ministerial were U.S. initiatives to work with our
negotiating partners to find a way to address differences and bridge
gaps. Out of this emerged recognition of the need to recalibrate the
FTAA to accommodate divergences of views on the issues raised by
Mercosur, as well as other issues of concern to many other countries,
including the United States. This set the stage for a successful U.S.-
hosted ministerial where a failure to progress, especially against the
backdrop of the Seattle WTO ministerial, the unsuccessful WTO meeting
in Cancun, and anti-globalization campaign activities, could have set
back global work on trade significantly.
Results ofMiami Ministerial: As described in the ministerial
declaration, the Miami framework provides that (1) there would be a
"common and balanced set of rights and obligations applicable to all"-
one set of commitments that every country would undertake; (2) this
common set would include provisions in all of the previously-agreed
areas of negotiation; (3) additional provisions could be agreed,
perhaps on a plurilateral basis, among countries that so choose; and
(4) both the common set and the additional provisions would together
constitute the FTAA. Contrary to what the GAO report indicates, nothing
in the Miami Declaration refers to "upper" or "lower" tiers of the
FTAA, and we were careful in Miami to avoid those terms-though the
clear understanding at Miami was that the common set would be less
ambitious than what most, or perhaps any, of the participating
countries had at one time sought. For the United States, the Miami
framework was a way to make progress with all 33 hemispheric partners
together; the common set's core obligations, the plurilateral results,
and the FTAA as an institution would together be bases from which more
work could be done in future years.
Fleshing Out the Miami Framework: The FTAA Trade Negotiations Committee
(TNC) inconclusively discussed how to flesh out guidance for the
"common set" negotiations in February 2004, and a number of informal
consultations both preceded and followed that meeting. We joined
thirteen others in tabling at the TNC a proposal that reflected the
discussions in Miami the previous November. Besides the United States,
this group included Chile, three countries in the Andean region
(Colombia, Ecuador and Peru), all five of the Central American
countries, Panama, the Dominican Republic, Mexico and Canada, which
collectively account for approximately 90 percent of hemispheric trade.
At the TNC and subsequently, Mercosur continued to push for additional
commitments on market access and agriculture beyond what had been
agreed to during the 1998 to 2003 period and at the Miami ministerial,
and it advocated for further cuts in the agenda in other areas of
interest to many countries, including the United States, that, in the
view of many, ran counter to Miami's agreement on achieving a balanced
outcome. Other parties to the negotiations put forth other proposals.
As co-chairs, the United States and Brazil, tried through June 2004 to
see if we could bridge the gaps, and we achieved some results. This
past November, Ambassador Zoellick proposed to Brazilian Foreign
Minister Amorim that the United States and Brazil resume our work to
develop a package that could help build consensus among all 34
countries and lead to a resumption of fonnal negotiations. Ambassador
Zoellick and Foreign Minister Amorim met for this purpose on January
30, and further U.S.-Brazil meetings are planned.
U.S.-Brazil Co-Chair Role and Negotiating Dynamic: It is important to
note the roles of the United States and Brazil, which the GAO report
mischaracterizes. Being co-chairs means that our two countries manage
the overall negotiating process and chair senior-level meetings. Where
there are problems in the talks, the co-chairs must try to come up with
proposals to bridge gaps and facilitate consensus. This is exactly what
we did at the Miami ministerial and before, and it is the approach we
have pursued at the February 2004 TNC and in infonnal talks since.
While it is true that the United States and Brazil are far from
disinterested arbiters in the negotiations, it is disingenuous and
misleading to characterize the problems in the FTAA negotiations as
mainly U.S.-Brazil problems; on some issues, the United States and
Brazil find themselves taking opposite positions, but this cannot mean
that all the difficulties in the FTAA boil down to U.S.-Brazil ones or
support what appears to be a bottom line of the GAO report that the
FTAA is largely a U.S.-Brazil negotiation. Nor is it really accurate to
refer to "Brazil-and U.S.-led coalitions," since that understates the
diversity of views and negotiating dynamic. We disagree that the U.S.-
Brazil co-chairmanship "complicated" the negotiations and that both it
and the Miami framework failed. In fact, the issues are complicated,
and the co-chairmanship reflects the importance of the U.S. and
Brazilian roles in bringing the negotiations to successful conclusion
despite those complications. In our view, the Miami framework is the
right mechanism to resolve issues in our diverse hemisphere in ways
that will produce meaningful results for all our peoples. Just as it
took time to develop detailed guidelines following the launch of
negotiations in 1998, so is it perhaps inevitably taking time to turn
ministers' general guidance in Miami into specifics-but that does not
equate to failure. Nevertheless, it is regrettable that Brazil did not
exercise its responsibility to host the FTAA trade ministerial in 2004
to which it had agreed, thereby losing an important opportunity to move
the negotiations forward.
"Shifting" Resources: The GAO also claims that countries, especially
the United States, shifted attention and resources away from the FTAA.
At least insofar as it concerns the United States, this is also
incorrect. The United States devoted senior-level attention to the WTO
in mid-2004, reflecting the urgency of progress in the Doha Round and
the opportunities for achieving it. At the same time, we have
vigorously negotiated bilateral FTAs in the Americas and elsewhere, but
these have not been a result or a reflection of a shift away from the
FTAA. Our actions are entirely consistent with the competitive
liberalization strategy that this Administration has executed since
2001.
Key Issues: The GAO report identifies agricultural subsidies, market
access for sensitive agricultural products and intellectual property
rights as the focus of disagreement. To be sure, these are significant
issues, but it is biased and incomplete to single these issues out.
Issues exist in the areas of services, investment, government
procurement, AD/CVD and dispute settlement, and specific, unresolved
topics include traditional knowledge and folklore, what flexibilities
and special arrangements should be available for the region's least
developed countries, proposed safeguard mechanisms, and the treatment
of labor and the environment-the last being among many objectives
that Trade Promotion Authority legislation calls on the Administration
to seek in trade accords. The balance achieved among all of these and
other issues, and the implications of how they are handled, are
important for every country participating in the FTAA. For each, as the
November 2003 Miami ministerial declaration states, benefits and
obligations will need to be balanced; how will be a function of the
balances struck in the common set (for all countries) and in the
plurilateral negotiation track (for participating countries). The
report incorrectly states that the United States plans to reduce its
market access offers for Brazil and Mercosur. Instead, we and many
other countries have made clear that, when negotiations resume, our
revised initial market access offers will be commensurate with the
balances struck in the common set instructions. This is not to prejudge
the outcome of the negotiations on all fronts where, within the context
of the common set, we can and should push for the most ambitious-and
appropriately balanced-results possible.
Toward Hemispheric Free Trade: Finally, we wish to note the overall
regional trade context, on which the GAO report is silent, except to
criticize as a problem. Trade liberalization in the Americas-through
the FTAA, as a result of agreements in the WTO, and bilaterally-is a
priority for the United States because we believe it will be good for
U.S. political, commercial, and economic interests and for prosperity,
freedom and stability in an important region literally on our borders.
We have pursued our trade interests in all three of these channels and
in a manner consistent with the Administration's overall competitive
liberalization strategy. Among other things, the Doha round is
important as a way to address, in an appropriate multilateral context
where all the key actors are present, issues of agricultural subsidies
that are important to the United States and most Latin Americans,
alike. We believe that the progress achieved on the Doha Development
Agenda in 2004 augurs well for the FTAA. Our bilateral free trade
agreements in the Americas are bringing important benefits to U.S.
farmers, workers, consumers and businesses. Through these accords, we
are building-with two-thirds of the region's non-U.S. gross domestic
product and population-far-reaching integration and more effective
trade strategies that are vitally needed in the Americas. Far from
being a `distraction,' as the report suggests, these FTAs are stepping
stones toward realizing the vision laid out by hemispheric leaders at
the first Summit of the Americas.
Thank you once again for this opportunity to provide our perspectives
on your report.
Sincerely,
Peter F. Allgeier:
Deputy United States Trade Representative:
The following are GAO's comments on the U.S. Trade Representatives's
letter dated February 10, 2005.
GAO's Comments:
1. Our report does not attempt to assign blame for the slowdown of the
talks. We conducted extensive research, including in-depth interviews
with numerous participants both before and after the Miami ministerial,
to identify key developments and factors that were affecting the FTAA's
progress. In general, those with whom we spoke were concerned about the
lack of progress in the FTAA. However, the tenor of remarks was
generally constructive, in recognition of the complexity of the task
faced by the United States and Brazil as co-chairs seeking to finalize
an FTAA by bridging substantive differences among the 34 diverse
nations of the Western Hemisphere.
In terms of our characterization of the role of the U.S. and Brazil,
the evidence we collected clearly indicates that the U.S. and Brazil
did play the key roles in the negotiating dynamics both as co-chairs
and as proponents of different visions of the FTAA. Moreover
outstanding U.S.-Brazil disagreements over key issues were identified
as the most important cause of the present impasse by the FTAA
participants and trade experts from whom we obtained input.
Regarding the co-chairmanship see comment 11.
2. Our report describes the chronology of events that occurred since
the Miami Ministerial and the level of activity in the various ongoing
negotiations. The United States and Brazil are actively involved in
negotiations at three levels: regionally in the FTAA, subregionally
such as through bilateral FTAs, and globally at the WTO. In some cases,
the same personnel are working on multiple negotiations. Officials from
both countries indicated that, consistent with their respective
"competitive liberalization" strategies, they were channeling their
attention and efforts to those negotiations showing the most immediate
promise, which for most of 2004, were not on the FTAA. The report
reflects this, and also notes that officials from both countries
expressed the view that progress in other negotiations would eventually
contribute to progress on the FTAA. GAO is not questioning these
judgments.
3. We did not assign blame for the slowdown in the negotiations to any
of the parties. The report's objectives were to describe progress in
the negotiations and to identify factors affecting the FTAA's progress.
It is undisputed that there are outstanding U.S.-Brazil disagreements
over key issues. These disagreements were identified by those officials
and experts we contacted as the most important cause of the present
impasse. The report does not "choose sides" on the issues but rather
explains the basic differences between the parties' positions. It then
notes that an unwillingness or inability to accommodate each others'
priorities is at root of the present impasse. Our report presents these
issues in the context of a post-Miami, two-tier FTAA that would likely
involve less ambition than prior to Miami, but which remains undefined.
4. We have modified our report to elaborate upon U.S. initiatives to
spur progress and on hemispheric efforts to improve dialogue with civil
society and implement the Hemispheric Cooperation Program. However, our
understanding is that these initiatives have only progressed since
Miami with respect to countries with whom the United States is
negotiating bilateral or subregional FTAs.
5. Our report already identifies the question of whether to change the
FTAA's originally-envisaged scope and depth as the central dilemma
facing negotiators prior to Miami and includes all of the information
USTR describes. It also includes the alternate perspective held by
Brazil and its Mercosur partners, namely that, in their view, the
United States also effectively called into question the FTAA's original
terms of reference by refusing to discuss the topics of domestic
supports for agriculture and trade remedies within the FTAA, due to
their systemic nature and ongoing WTO negotiations. In our view the
presentation of both positions, in the context of the WTO Doha round's
launch in November 2001 and its ensuing delays, yields a balanced and
accurate report.
6. Our report notes that the U.S. offer differentiated among nations
was in keeping with the shared goal of providing smaller economies
better treatment. The report also notes that some Mercosur members did
not submit their market access offers on several rule-making topics on
schedule. However, this section of the GAO report is intended to
explain the slowdown in FTAA talks and the developments that led to the
change in the FTAA's structure at the Miami ministerial. Brazil reacted
publicly and negatively to the differentiated U.S. market access offer,
and cited it as one reason for its proposed scale-back, and we describe
this development.
7. GAO acknowledges the extensive efforts made by U.S. government and
Miami officials to make the Miami ministerial successful, and, in
response to USTR's comments, have added specific language to that
effect, as well as references to the three meetings Ambassador Zoellick
organized in an effort to provide direction and identify ways to move
the talks forward.
8. The GAO report provides a detailed description of the Miami
ministerial declaration as issued by ministers. In that section, the
report makes a clear distinction between the exact words used by
ministers and our own use of "lower" and "upper" tiers to describe the
new, two-tier FTAA structure. We believe the terms lower and upper
tiers are a concise and intuitive way of describing the notion of a
baseline of commitments common to all 34 members and another set of
supplementary, deeper commitments undertaken on a voluntary basis.
Because of the need to refer repeatedly to these concepts throughout
the rest of the report, we disagree with USTR's comment and have not
modified our report.
9. GAO modified its report to include the detailed developments
described by USTR, including its efforts to work with other countries,
in connection with the inconclusive February TNC meeting. The GAO
report now also notes that Brazil and its Mercosur partners presented a
proposal at the February meeting and that the U.S. and its partners'
proposal goes beyond Mercosur's in certain respects, whereas the
Mercosur proposal goes beyond the U.S. coalition's proposal in others.
We note that the two main "camps" at the February TNC are roughly
similar to the two main "camps" that emerged in the pre-Miami debate
over the FTAA's scope and depth of obligations. The report also notes
that after the February TNC meeting, both sides complained that the
other side's proposal denied them commercial benefits that they deemed
were essential to attaining an acceptable balance of rights and
obligations in the FTAA agreement.
10. We believe the report accurately characterizes the role of the co-
chairmanship as involving management of the overall negotiating
process, scheduling and chairing of senior-level meetings, and
facilitating consensus. However, the report also notes that those we
spoke with were concerned that thus far the U.S.-Brazil co-chairmanship
has had limited success in these areas and in moving the negotiations
forward generally. Moreover, we note that even U.S. and Brazilian
officials told GAO that the co-chairmanship has complicated progress.
For example, a senior U.S. official who is directly involved in the
negotiations told us the United States and Brazil could not agree on
the format and attendees for a U.S. proposed meeting to coordinate
positions ahead of the February 2004 TNC, and as a result, the meeting
never occurred. A Brazilian official with intimate knowledge of the co-
chairmanship told us that in practice, the co-chairmanship means the
U.S. and Brazil must agree on each document before it can be
distributed, slowing progress. GAO notes that USTR's agency comments
indicate that the co-chairs still do not agree on the pace and
direction for the FTAA. GAO believes, and its interviews suggest, that
this lack of agreement has complicated the co-chairmanship's capacity
to spur FTAA progress.
11. See comment 1.
12. Although they often acknowledged that the two-tier structure was
agreed to by all 34 participants at Miami, those we spoke with
generally expressed disappointment that the two-tiered structure has
not, as hoped, propelled the process forward, nor provided members with
a workable roadmap for resuming pursuit of an FTAA. In particular, the
two tiered structure has not resolved differences in vision over the
FTAA's ambition, and some experts felt it has complicated the task of
striking an acceptable balance of rights and obligations among FTAA
nations.
13. See comment 2.
14. GAO disagrees. As USTR is aware, GAO extensively reviewed official
FTAA and U.S. government documents and had several meetings with U.S.
and Brazilian officials to discuss and analyze the outstanding issues.
We highlight in the report those issues that emerged as the key
sticking points as of when the talks broke down, according to our
interviews with officials directly familiar with the talks. We
acknowledge that there are more unresolved issues and have made a minor
wording changes in the report to make that more clear.
15. GAO disagrees. The report as submitted to USTR for comment states
that Brazil's ambassador expressed concern that key Brazilian products
would be excluded from FTAA tariff elimination--not that the U.S. plans
to reduce its market access offer.
16. USTR mischaracterizes the treatment of this issue in the report.
The report describes the competitive liberalization policy of the
United States and the priority given by the United States to pursuit of
the WTO Doha round and sub-regional initiatives. In addition, the
report notes U.S. officials' belief that progress in these forums have
already yielded important progress and may ultimately be helpful to the
FTAA. In addition, the report states that those we spoke with felt the
progress in the WTO was helpful to the FTAA and that further WTO
progress was desirable. With respect to U.S. pursuit of sub-regional
agreements such as bilateral FTAs, consistent with the evidence
collected, the report notes that the United States believes that these
are advancing U.S. trade goals in the hemisphere in a step-by-step
fashion, but states that not all participants and observers are
convinced that these are helpful to the FTAA and to hemispheric
integration generally.
[End of section]
Appendix III: Comments from the U.S. Department of Commerce:
UNITED STATES DEPARTMENT OF COMMERCE:
International Trade Administration:
Washington, D.C. 20230:
Mrs. Jacquelyn L. Williams-Bridgers:
Managing Director, International Affairs and Trade:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mrs. Williams-Bridgers:
Thank you for sending your draft report, Free Trade Area of the
Americas: Negotiations Stalled; Differences Between Key Participants
Persist as Deadline Passes (GAO-05-166).
Upon review of the draft report ITA suggests one change to the market
access summary, on p. 57, which makes the following statement: "Brazil
and its Mercosur partners want all tariffs to be phased out in the
FTAA, but the United States is not prepared to commit to an outcome to
fully liberalize tariffs on all products at this stage of the FTAA
negotiations." ITA believes the statement oversimplifies the situation.
While the United States left some products off the table at the point
at which negotiations stalled, they were all agricultural products, and
the percentage of agricultural products excluded was not high. The
United States did not propose any non-agriculture exclusions.
The statement should be modified to reflect the preceding information.
In addition, the market access summary makes no mention of the fact
that the United States tabled very forthcoming initial tariff offers
while Brazil's initial offer placed most of its products in the most
conservative phase-out basket.
ITA always appreciates the opportunity to work with GAO. Thank you for
the opportunity to review this report and we look forward to receiving
the final version.
Sincerely yours,
Signed by:
Linda Moye Cheatham:
Chief Financial Officer and Director of Administration:
The following is GAO's comment on the U.S. Department of Commerce's
letter received January 24, 2005.
GAO Comment:
1. GAO updated the report to reflect this.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgment:
GAO Contacts:
Kim Frankena (202) 512-8124;
Venecia Rojas Kenah (202) 512-3433:
Acknowledgments:
In addition to those listed above, Jose Martinez-Fabre, Mark Keenan,
Michelle Munn, Jonathan Rose, Jamie McDonald, Etana Finkler, and Ernie
Jackson made key contributions to this report.
[End of section]
Related GAO Products:
World Trade Organization: Cancun Ministerial Fails to Move Global Trade
Negotiations Forward; Next Steps Uncertain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-250]
Washington, D.C.: January 15, 2004.
International Trade: Intensifying Free Trade Negotiating Agenda Calls
for Better Allocation of Staff and Resources.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-233]
Washington, D.C.: January 12, 2004.
Free Trade Area of the Americas: United States Faces Challenges As Co-
Chair of Final Negotiating Phase and Host of November 2003 Ministerial,
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-700T]
Washington, D.C.: May 13, 2003.
Free Trade Area of the Americas: Negotiations Progress, but Successful
Ministerial Hinges on Intensified U.S. Preparations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-560]
Washington, D.C.: April 11, 2003.
World Trade Organization: Early Decisions on Key Issues Vital to
Progress in Ongoing Negotiations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-879]
Washington, D.C.: September 4, 2002.
Free Trade Area of the Americas: Negotiators Move Toward Agreement That
Will Have Benefits, Costs to U.S. Economy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-1027]
Washington, D.C.: September 7, 2001.
Free Trade Area of the Americas: April 2001 Meetings Set Stage for Hard
Bargaining to Begin.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-706T]
Washington, D.C.: May 8, 2001.
Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of
April Meeting.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-552]
Washington, D.C.: March 30, 2001.
World Trade Organization: Progress in Agricultural Trade Negotiations
May Be Slow.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-00-122]
Washington, D.C.: March 7, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-00-86]
Washington, D.C.: February 10, 2000.
World Trade Organization: Seattle Ministerial: Outcomes and Lessons
Learned.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-00-84]
Washington, D.C.: February 8, 2000.
Agricultural Trade: Changes Made to Market Access Program, but
Questions Remain on Economic Impact.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-38]
Washington, D.C.: April 5, 1999.
(320266):
FOOTNOTES
[1] U.S. General Accounting Office, Free Trade Area of the Americas:
Negotiations Progress, but Successful Ministerial Hinges on Intensified
U.S. Preparations, GAO-03-560 (Washington, D.C.: Apr. 11, 2003).
[2] The 34 countries participating in FTAA negotiations are Antigua and
Barbuda, Argentina, the Bahamas, Barbados, Belize, Bolivia, Brazil,
Canada, Colombia, Chile, Costa Rica, Dominica, the Dominican Republic,
Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras,
Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and
Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad
and Tobago, the United States, Uruguay, and Venezuela.
[3] Defensive interests are those aimed at preserving the status quo
and are generally associated with protecting domestic markets.
[4] Offensive interests aim at liberalization or imposing disciplines
on other member countries' markets.
[5] CARICOM is a regional bloc whose members are Antigua and Barbuda,
the Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti,
Jamaica, Montserrat (overseas territory of the United Kingdom), St.
Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname,
and Trinidad and Tobago.
[6] Mercosur includes Argentina, Brazil, Paraguay, and Uruguay.
[7] Domestic supports are payments made to farmers that raise prices or
guarantee income. They include such measures as government buying at
guaranteed prices, commodity loan programs, and direct payments to
farmers.
[8] Export subsidies are subsidies contingent on export performance.
They include cost reduction measures, such as subsidies to lower the
cost of marketing goods for export, and internal subsidies applying to
exports only.
[9] P.L. 107-210. Under this law, Congress agreed to consider
legislation to implement a trade agreement under special legislative
procedures that limit debate and allow no amendment. The President is
required to consult with congressional committees during negotiation
and notify Congress at major negotiating junctures.
[10] GAO-03-560.
[11] The Farm Security and Rural Investment Act of 2002 (P.L. 107-171,
May 13, 2002).
[12] For an in-depth treatment of the U.S. commercial interest in these
issues, see U.S. Government Accountability Office, Free Trade Area of
the Americas: Negotiators Move Toward Agreement That Will Have
Benefits, Costs to U.S. Economy, GAO-01-1027, (Washington, D.C.: Sept.
7, 2001).
[13] For a discussion of the factors contributing to the WTO breakdown,
see U.S. Government Accountability Office, World Trade Organization:
Cancun Ministerial Fails to Move Global Trade Negotiations Forward;
Next Steps Uncertain, GAO-04-250 (Washington, D.C.: Jan. 15, 2004).
[14] Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Canada,
Mexico, Chile, Dominican Republic, Panama, Colombia, Peru, and Bolivia.
[15] The Miami Ministerial Declaration is available at-alca.www.ftaa
org/Ministerials/Miami/Miami_e.asp.
[16] "Plurilateral" means subsets of the 34 participants.
[17] Namely, Canada, Chile, Colombia, Costa Rica, Dominican Republic,
Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru, and the
United States.
[18] According to publicly available versions of the proposals, for
example, the U.S.-led coalition called for the FTAA common set to
include a framework of rules on services based on, but not limited to,
the WTO General Agreement on Trade in Services (GATS), whereas the
Brazil-led coalition called for tariffs on the entire tariff universe
to be eliminated; for defining hemispheric mechanisms to neutralize the
distorting effects of domestic agricultural support payments and for
disciplines on practices with similar effects of export subsidies, such
as export credits and food aid; for investment, to have negotiations on
market access, in addition to transparency provisions; on trade
remedies, for nonbinding consultations prior to and after initiating
antidumping and countervailing duty investigations.
[19] GSP provides developing countries a margin of preference in the
tariff rates their goods face upon entering the United States and, in
this way, increases their competitiveness in the U.S. market.
[20] TPA is set to expire in mid-2005, unless renewed. If the President
so requests by March 1, 2005, and if neither entity of Congress adopts
an extension disapproval resolution before June 1, 2005, the authority
will be automatically extended for 2 years (until mid-2007).
[21] We interviewed foreign officials from the following FTAA
participant countries: Brazil, Canada, CARICOM, Chile, and Costa Rica.
[22] We received oral or written responses to our open-ended questions
from the following FTAA participant countries: Argentina, Brazil,
Canada, Chile, Colombia, Dominican Republic, Ecuador, Honduras,
Jamaica, Mexico, Paraguay, Peru, St. Vincent and the Grenadines, the
United States, and Uruguay.
[23] For example, Mercosur, CARICOM, NAFTA, and the Andean Community.
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